Lagarde-ian of the Galaxy

The first female chief of the IMF on the Greek meltdown, a historic refugee crisis and one thing Hillary Clinton has in common with an "old crocodile."

Interview by Isaac Chotiner

Art By Rob Dobi

IMF's Christine Lagarde On Greece, Refugees And The Gender Gap

Isaac Chotiner

The morning scene at New York’s Carlyle Hotel is about the most perfect illustration of the term “power breakfast” that you could envision. On the ground floor of the opulent art deco hotel—a longtime favorite of American presidents, and the preferred Manhattan residence of visitors from Princess Diana to Mick Jagger to George Clooney—impeccably attired men enjoyed the buffet as several different security details milled about the lobby.

Christine Lagarde, the head of the International Monetary Fund, was sitting at a secluded table with an aide. Since Lagarde, 59, replaced Dominique Strauss-Kahn at the IMF—a formerly staid institution created in 1944 to ensure financial stability largely through the maintenance of exchange rates—she has found herself at the center of not one but several global emergencies. Europe’s economic meltdown has threatened not only the future of its shared currency, but the very idea of the European Union itself. Now, the continent’s still-stagnant economy must cope with the biggest flow of refugees the world has seen since the defeat of fascism. Under Lagarde’s leadership, the IMF has broadened its mandate significantly, not only playing a key role after the market crash, but also issuing controversial reports on the economic impact of global warming, inequality, and gender disparity.

Interviewing Lagarde is not like interviewing most other politicians or public figures. She is an intent listener, leaning forward attentively in her chair. She laughed often, never once checked her phone (this bordered on the astonishing), and answered questions on all manner of subjects without much of a filter. During our hour-long conversation, which has been lightly edited and condensed for clarity, she discussed her frustrations with Greece, her private conversations with Angela Merkel and Hillary Clinton, and her thoughts on how people react to powerful women.

Isaac Chotiner: Henry Kissinger or someone, I can’t remember who (and I apologize for quoting him to you) said—

Christine Lagarde:[Laughs] I will see him later today.

IC: I am doubly sorry then. He has some line about when there is a problem in Europe you don’t know who to pick up the phone and call.

CL: Yeah, yeah, yeah, yeah.

IC: So who do you call?

CL: Guess.

IC: Angela Merkel.

CL:[Nods and smiles.]

IC: That’s interesting.

CL: I mean, that’s the reality. I will call Pierre Moscovici 1
and he answers the phone.

1 The European commissioner for economic and financial affairs, taxation and customs.

IC: Merkel doesn’t pick up your calls?

CL: No, no, no, she does. We work together. First we text message, and then we talk when we are both available.

IC: Greece and its creditors have reached a deal, which includes a bailout in exchange for tax hikes and spending cuts, to avoid a major Greek default and keep the country in the euro. But given that Greece and Germany remain on the same currency, which some people think of as the original sin, what is going to keep these problems from recurring?

CL: First of all, I understand why you are opposing Greece on the one hand, Germany on the other hand. But you have other countries where the variation of the strength of the economy and the balance of payments could have been obstacles to integration. Ireland, Portugal, and eventually, Spain. And clearly those three show that you can restore a situation where countries can continue to operate.

IC: But isn’t the problem with a currency union that if one country makes bad choices, everyone is at risk? It seems very likely that even if Greece survives this particular crisis, it’ll happen again.

CL: It might. It might. The consequence of Greece being in a single-currency union is that it effectively loses one tool against recession. It cannot use devaluation, as other countries outside a currency zone can use it. You depreciate, you become more competitive. So you have to restore your productivity in two ways: You work on your unique labor costs, as happened in Portugal, Spain, Ireland and Greece. And you improve the overall economy by restructuring it to make it more agile and prone to innovation. This is a choice Greece has yet to make. The other point about Greece, which I think makes it a special case in the eurozone, is that there was a culture of … [pauses]

IC: You can be rude. It’s fine.

CL: I don’t want to offend people. They are trying to change that culture. But there was a culture—at a certain level in society—of not contributing to society by paying taxes. Under the constitution, the entire shipping industry is tax-exempt. 2
And over time, the definition of what was shipping gradually enlarged. One of the proposals on the table is to restrict the definition of the shipping industry and move it into paying tax. It’s a bit bizarre. At one point 18 months ago, the shipping industry was volunteering a contribution to the tax authorities of Greece because it wasn’t paying any. That doesn’t happen in many places.

2 Greece’s shipping industry is responsible for more than 7 percent of its GDP. Greek companies control nearly 20 percent of the world’s shipping fleet.

IC: The IMF released a report several months ago saying that Greece’s debts were going to have to be restructured or forgiven and that this was inevitable.

CL: We didn’t say ‘forgiven.’ We said ‘restructured.’

IC: Do you think that the IMF could or should have said this five years ago? Could that have made a difference, given the misery Greece has endured?

CL: We pushed very strongly for the first restructuring of private sector debt in winter 2011 or 2012.

IC: But even that was pretty late though, right, compared to when the crisis started?

CL: You know, it is very easy in retrospect to say that. But at the time, and I wasn’t in the IMF then, we had no European Stability Mechanism. 3
And each of us, in our countries, did not want that isolated case playing out throughout the entire European Union. Are you going to write a book on Greece?

3 Established in 2012, the ESM was created to provide financial support for struggling European countries in the event of fiscal emergencies.

IC: This is the last Greece question. When the IMF released that report—

CL: People didn’t like it.

IC: Did they dislike it because they disagreed on the economics, or because restructuring Greek debt would be a huge political problem?

CL: I think it was more of a political problem. With that level of debt, with that schedule of repayment, with the lack of attractiveness of Greece as a financial destination—everybody knows [restructuring] has to happen.

IC: So when you are talking to Angela Merkel or the German finance minister, do you think they know restructuring debt is inevitable, and their opposition is about the German electorate?

CL: I think there’s a big political dimension to it.

I have noticed that when a woman speaks, people start chatting or looking at their emails or doing something else. It is very, very strange.

Photo: Michael Gottschalk/Photothek via Getty Images.

IC: Do you think there is some lesson learned in Europe that austerity in a time of crisis doesn’t work?

CL: I don’t think there is austerity at the moment. There is no fiscal contraction today. Spain has done pretty well. The U.K. has had a very heavy-handed approach—sorry, I shouldn’t say that. It has had very heavy-handed communication on fiscal consolidation. But bottom line, has austerity worked? A well-balanced discipline has actually worked.

IC: Were you in the room for a lot of these negotiations?

CL: Yeah.

IC: It must be fascinating having people from so many different countries and cultures. Here you have the Fed, and it’s just a banker from Dallas and one from Kansas City. But there you have [Greek Prime Minister] Alexis Tsipras and Merkel.

CL: Well, first of all, the way those meetings take place, there are a lot of pre-meetings beforehand to lay the groundwork. Then the full session begins and you have statements of different kinds made. And there is a roadblock. So someone says, “Let’s have a breakout session,” and people try to make progress. And then you come into the full session. The length of those breakout sessions will almost invariably tell you the size of the obstacles. We had two nights in a row in mid-July shortly after the debt analysis in Greece. The last bilateral took a lot of time. Two or three hours. And eventually it was completed with four actors in the room. I won’t tell you who they were.

IC: You won’t?

CL: No. [Laughs.]

IC: I want to transition: You have talked about being a woman in a leadership role. Do you ever feel that world leaders or central bankers treat you differently because of your gender?

CL:[Very long pause.] No. I don’t feel treated differently, but I am still in doubt as to whether it’s the institution I represent and the authority it carries, or whether it has to do with respect for me as there would be respect for a man. There is still a little doubt in my mind as to whether there is a slightly dismissive response to my views because I am a woman. I might be unfair because I think that people in meetings and large groups have often been respectful and have often deferred to the views of the IMF as I express them. But one thing I will say is that in many forums that I have shared, I have noticed that when a woman speaks, people start chatting or looking at their emails or doing something else. It is very, very strange. If you participate in mixed large groups …

IC: I should look out for that?

CL: Look out for that. I am often chairing some of those meetings, and when I see that happening I knock on the microphone. [Pretends to give a death stare across the room.]

IC: Have you ever talked to Merkel about this? She is one of the three or four most powerful people in the world, arguably, and I can’t think of the last time that was true.

CL: I think Thatcher was the last one, at least on the European scene. I have discussed it with her, but she has a different take on that.

IC: How so?

CL: Well, she is better off saying what she thinks about it, but I think she has had a different experience with inequality and discrimination. And that is what she explains about herself. Being born and raised in Eastern Europe, there was no discrimination between girls and boys. Everybody had to go to school. She says that she never faced discrimination in the Eastern European system. Which is not to say that she praises it.

IC: Do you find a gap in gender issues between Europe and America?

CL: Yeah. I brought up my children, one in France, and I had child care, publicly funded, from three months to three years. I had to get some family support, but all of that is much more accepted. It may not be the same in all countries. In Germany there is a bit of a cultural bias against women who do not raise children for a period of time. But here, when I talk to young mothers, they have a terrible time finding support.

IC: What about when you speak, in terms of things like being interrupted? Do you find a difference there?

CL: Oh, people don’t interrupt me when I speak. If they do, I am going to give all my comments looking at that person. [Another mock death stare.] It produces a freezing effect quite quickly. It’s rude. Either you are in the room or you are not in the room. I tell people, “Turn your thingie face down.” [Pretends to slam her phone face down on the table.] The only person able to use it is the head of communication. Sometimes people cheat and I see them.

IC: Do you have any advice for women running for office, like Hillary Clinton, about how to deal with these issues?

CL: She doesn’t need my advice. She is a strong woman. As she put it, she has skin as thick as an old crocodile.

IC: I can’t wait until the Republicans get hold of that line.

CL: No, no, no, no, no. Thick skin. Old crocodile is a bit unkind. I don’t want to say that. But you need a thick skin in the world of politics, and you need a thicker skin when you are a woman.

IC: You took over the IMF at a time when your predecessor, Dominique Strauss-Kahn, had had issues with—

4 To recap, just in case: Strauss-Kahn resigned from the IMF after being accused of sexually assaulting a woman who worked at the New York City hotel where he was staying. Criminal charges were eventually dropped; he settled a civil suit with the hotel employee. It was a disaster.

IC: I was going to say gender, but your word is less euphemistic. When you came in, did you feel like you had to set a new tone?

CL: I will never forget the first town hall meeting I had when I joined. I arrived in the United States on July 4th, spent the night at a hotel room that was so sad, and I was thinking, what on Earth am I doing? I went to work on July 5th and the first town hall at the IMF headquarters was either that afternoon or the following morning. And the ambiance, the anxiety—it was a very strange feeling of anxiety, frustration, expectations. It was something I had never experienced before. And I felt we had to move on. They had to get over it. They had spent the last couple of months, since May 15th, looking every morning at what was new about the scandal. For a group of people of high-caliber intelligence, it was a bit debilitating. So I thought: let’s focus on quality work.

And then [Strauss-Kahn] asked me if he could come and say farewell because he hadn’t been able to in the circumstances. And I thought, yes, that is the way to heal.

IC: The Fund also released a report on inequality and economic growth.

CL: We released two reports, actually.

IC: How is battling inequality part of the IMF’s mission?

CL: I think the conclusions of the work we did were, number one, that excessive inequality was counterproductive to sustainable growth. And everyone wants sustainable, strong, balanced growth. Well, if we are logical about that goal, then we cannot have excessive inequality, which helps justify the fact that the IMF is doing growth and research on that. The second report said that redistribution was not necessarily anti-growth. There was that conventional wisdom that redistribution was not conducive to entrepreneurship, opportunity, and our findings were to the contrary.

IC: Do you worry that with things like this—

CL: We have to, by virtue of our mandate—

[Loud laughing and talking from a nearby table]

Americans are so noisy. It’s really bizarre, no? It’s always like that. [She and her aide discuss moving to another room.] Anyway, I think they will gradually lower their voices. That’s what normally happens.

IC: You could try giving them death stares.

CL: Yeah, they would turn their backs on me. So, I think doing work and analysis on inequality is critically important, but we have to restrict our work to the mandate of the IMF. 5
I cannot take the institution into territories that are not allocated by the charter, because the backlash will be instant.

5 The Fund’s mandate was “updated in 2012 to include all macroeconomic and financial sector issues that bear on global stability,” according to the IMF’s website.

IC: Do you worry about that when the IMF comments on inequality or global warming?

CL: Or gender. I think we have carried the day. The board is convinced—or most of the board is convinced—that it’s necessary to study the impact of gender, inequality and climate change. So I think that is okay, but it has not been easy. Two years ago we had a number of board members who were very skeptical about the direction of that research. I think we are there now. I mean, when you demonstrate with numbers that having women contribute to the society and economy is actually going to raise GDP, by a factor of anywhere from 23 percent when you look at Saudi Arabia and India, to 3 percent in America, it is fairly compelling. 6

6 According to an IMF report, if the number of women in the workforce were equal to that of men, GDP would increase by 5 percent in the U.S, 9 percent in Japan, and 34 percent in Egypt.

IC: Speaking of things that may not immediately seem like they are in the IMF’s purview: the refugees in Europe. How have you been involved in the issue?

CL: I will give you an example. We have a program in place with Jordan. Jordan has increased its population by 25 percent by welcoming refugees from Syria. Their fiscal consolidation program was completely changed so the Jordanians could cope with the flow of refugees. The second thing that we are doing, and hopefully it will help the Europeans, is some analytical work on the economic impact of migrations and the ways in which refugees are either welcomed or not, and how much that can help countries where the aging of the population is becoming a big economic issue.

IC: The Germans seem to think this could be an opportunity in some way.

CL: They are right.

IC: You do think they are right?

CL: I don’t want to prejudge because they have not done the analytical work, but I would bet that if the influx is well-managed, yes, it is bound to be a positive in a society which is aging and which has the fiscal space to accommodate it.

IC: Do you worry about a political backlash occurring in Europe? Someone in ISIS slipping through, or something?

CL: I think of two impacts. The divide that is created within the euro area, where you have, for the first time ever, interior ministers having to take a vote on the quota of refugees. Normally decisions are made by consensus. Five countries dissented and yet the majority view was imposed. The second is the practical one of managing the inflow of refugees. That is a big strain.

IC: This fits into a larger question about the IMF. People say that it is an organization of technocrats, and it seems, not just with America and people like Donald Trump, but in France with Marine Le Pen and anti-EU sentiment, we are in a very anti-technocratic moment.

CL: When someone says, “Oh, you are just a bunch of technocrats,” I can’t help thinking of our mission teams who are caught in the middle of turmoil. We just extricated a team out of Burkina Faso.

IC: From the coup?

CL: From the coup. We also have people in Yemen. They might be technocrats but they are also deeply engaged in work in the field, and they see it for themselves and they suffer for themselves. We lost a staff member last year in Kabul—

[Woman in party across the room starts talking very loudly]

It’s interesting it is the woman shouting. Maybe she has to shout loudly because otherwise she is not listened to. That’s an aside. Second point: We produce intellectual work on the economic fabrics of society. You can’t make policy decisions based on populism. If you do that, you run serious risks. And the third point is, at a time when there are so many walls being built, I think multilateral organizations like the IMF are helpful, where people can have a forum.

CL: I read The Economist almost on a weekly basis, not from page one to end, but I do read it. I am always interested in my dose of—I don’t want to say skepticism—but I read the columns of the likes of Joseph Stiglitz and Paul Krugman, and those sorts.

IC: You seem a little skeptical.

CL: I think they have a bias in their own way. But I respect the intellectual work on which they are building their little op-eds and the views they express. But they are not necessarily the gurus of economics. I always read what Olivier Blanchard 7
has to say. He has a broad understanding of the international issues, and is prone to admit when he doesn’t know or has made a mistake. I respect that highly.

7 Blanchard is the IMF’s chief economist.

IC: How do you like living in Washington?

CL: I don’t like it as much as Chicago. I was spoiled because I lived there for five years. I lived in Paris for a period of my life as well. But I like D.C. I think it is a very green, clean and diverse city. But I only spend 50 percent of my time there. I had not seen as much of a concentration of categories of people, per square meter, of lobbyists, lawyers, politicians.

IC: When you look back on the way Europe and the Obama and Bush administrations dealt with the crisis, how do you think history will judge them?

CL: I think—I hope—that in 2008 the right decisions and urgency and collective approaches were taken. There was some complacency after the first big stimulus and growth began picking up. People thought, “We can let up and tighten.” I think there was a lack of understanding of how deeply the financial crisis had affected economies around the world. Monetary policies should have taken into account a much longer and much deeper crisis. It came back to haunt us.

IC: Thank you.

CL: One thing you haven’t asked me that I want to say. When I told you that it was critical to have multilateral and strong institutions, I cannot understand why the U.S. authorities have not ratified reform of the IMF. 8

8 The White House has attempted to sell Congress on IMF reform that would strengthen the fund’s ability to respond to financial crises. The changes have been blocked due to Republican opposition: Lagarde has said "I will do belly-dancing if that's what it takes to get the U.S. to ratify."

IC: I can give you an answer.

CL: Yeah. I am saying it defies sense. The institution is helping with Greece and Ukraine and stability. And yet. So. Off the record you can tell me what you think.

IC: I am happy to say on the record. It goes back to what I was asking about populism and rebellion. We have one political party that is not interested in governing because that’s what the Republican base wants.

CL:[Pauses and shrugs.] Anyway, I went to Mass yesterday and the Pope said we should have hope. So I am having hope.